Empirical estimates of the Laffer curve optimal tax rate for the United States range from roughly 46 percent to 83 percent for the top income bracket, with a 2025 Joint Committee on Taxation analysis narrowing the “all-in” federal, state, and local peak to about 52 percent. The wide spread is not sloppy research. It reflects genuine disagreement over a single input called the elasticity of taxable income, and the answer shifts depending on which income (wages, capital gains, corporate profits), which time horizon, and which tax code you have in mind.
How the Curve Works in One Paragraph
A zero percent rate collects nothing. A 100 percent rate also collects nothing, because no one bothers earning taxable income. Somewhere between sits a peak. As rates climb, a mechanical effect pulls more from each dollar earned, while a behavioral effect pushes back as people work less, shelter income, or reclassify it. Revenue peaks where the two forces balance. Push past that point and raising rates loses money.
A common assumption is that the curve looks like a symmetric hill with the peak near 50 percent. Most empirical work shows it is lopsided and surprisingly flat near the top, meaning revenue changes little over a wide band of rates close to the maximum. A Joint Committee on Taxation study found the curve flatter than textbook illustrations suggest, partly because deductions, credits, and preferential rates give taxpayers many ways to reclassify income when rates rise.
The Number That Drives Everything: Elasticity of Taxable Income
Almost every estimate of the revenue-maximizing rate boils down to the elasticity of taxable income, or ETI. It measures how much reported taxable income drops when tax rates go up. An ETI of 0.4 means a 10 percent increase in the tax rate causes reported income to fall by 4 percent. The higher the ETI, the lower the revenue-maximizing rate, because taxpayers exit the base faster.
Published estimates vary enormously. Martin Feldstein’s early 1990s work put the ETI as high as 1.0 to 3.0, which would imply the U.S. was already past the peak. Later research by Emmanuel Saez and Jonathan Gruber, using more refined methods, landed on an overall ETI of about 0.4, with higher-income taxpayers showing a stronger response of roughly 0.57. The full range in the literature runs from near zero to over 0.8, depending on the income group, the period covered, and how researchers control for other simultaneous economic changes.
That spread matters because the formula linking ETI to the optimal rate is sensitive. With an ETI of 0.25, the revenue-maximizing top federal rate lands around 73 percent. Bump the ETI to 0.5, and the rate drops into the mid-50s. At an ETI of 0.77, which some recent studies find for the top one percent over longer horizons, the all-in revenue-maximizing rate falls to around 46 percent.
What Moves the Elasticity
The ETI is not a fixed feature of human nature. It reflects the tax code. When the code is filled with deductions, exemptions, and preferential rates for certain income types, taxpayers can shift reported income without changing how much they actually work or invest. This income shifting inflates the measured ETI and drags the revenue-maximizing rate down. A cleaner, broader base with fewer escape routes lowers the ETI and pushes the peak higher.
Enforcement matters too. The IRS estimates a gross tax gap of $696 billion for tax year 2022, with a voluntary compliance rate of about 85 percent. Research going back decades shows the deterrent effect of audits on the broader population runs roughly eleven times larger than the direct revenue audits collect. Stronger enforcement effectively lowers the ETI, which shifts the revenue-maximizing rate upward.
Time Horizon Changes the Answer
Short-run and long-run responses differ. In the short run, a tax cut can trigger a burst of realizations, especially for capital gains, as investors cash in assets they had been holding. A tax hike does not produce a symmetric contraction, because unrealized gains simply stay locked up. Over longer periods, taxpayers adjust career decisions, business structures, and investment strategies, which can produce larger or smaller responses than the initial year suggested. A study based on one year after a tax change will paint a different picture than one spanning a decade.
Where the Top Income Rate Peak Sits
The most widely cited estimate comes from Peter Diamond and Emmanuel Saez, who used an ETI of 0.25 and a Pareto parameter of 1.5 to calculate a revenue-maximizing top federal rate of 73 percent. Thomas Piketty, Saez, and Stefanie Stantcheva went higher, arguing that with an ETI of 0.2 (after stripping out income-shifting responses that reform could close), the optimal rate reaches 83 percent when applied to all income including capital gains.
These figures have drawn sharp pushback. Using an ETI of 0.40, which matches the Gruber-Saez estimate and sits near the midpoint of the literature, the same formula yields a revenue-maximizing rate closer to 63 percent. A 2025 Joint Committee on Taxation study by Moore, Pecoraro, and Splinter incorporated macroeconomic feedback effects and arrived at a preferred all-in rate of about 52 percent. That is the combined federal, state, and local top rate that maximizes revenue. With the current federal top rate at 37 percent and state rates stacking on top, the study concluded the United States may already be near the peak for the top ordinary income tax rate.
Trabandt and Uhlig, using a full macroeconomic model rather than the simpler sufficient-statistic approach, estimated a revenue-maximizing labor tax rate of 63 percent for the United States. They found the country sits on the left side of its Laffer curve, meaning there is some room to raise rates and collect more, but the scope for additional capital income tax revenue is small, bounded at roughly 6 percent above current levels.
Capital Gains Has Its Own Curve
Capital gains respond to tax rates differently than wages. Because gains are taxed only when an asset is sold, investors can defer indefinitely by holding. This lock-in effect means the behavioral elasticity for capital gains is driven largely by timing, not real economic activity. Raise the rate and people hold longer. Cut it and they sell in a rush.
A National Bureau of Economic Research study estimated the revenue-maximizing federal capital gains tax rate at 38 to 47 percent, based on long-run elasticities of roughly negative 0.3 to negative 0.5. Those elasticities are below 1.0 in absolute value, which means capital gains tax cuts do not pay for themselves. The researchers calculated that a 5 percentage point increase in the federal capital gains rate would yield $18 to $30 billion in additional annual revenue under the current system of unlimited deferral and stepped-up basis at death.
Proposals to tax gains as they accrue rather than at sale (mark-to-market taxation) would largely eliminate the lock-in effect and change the shape of the capital gains curve. Under such a system, the behavioral response would look more like the response for wages, and the revenue-maximizing rate would likely be higher.
Corporate Rates Are a Separate Question
Corporate income taxes have their own curve, shaped by international competition and profit shifting. A Congressional Research Service report reviewed the empirical literature and found that early studies from 2006 and 2007 estimated a revenue-maximizing corporate rate around 30 percent, while a separate study for large, relatively closed economies like the U.S. put it at 56 percent. After correcting for econometric issues in the prominent studies, CRS found many results became statistically insignificant, meaning the data could not reliably identify a peak at all.
When researchers controlled for simultaneous changes in the tax base, the estimated revenue-maximizing corporate rate jumped to 61 percent generally and approached 100 percent for a large economy with limited openness. The CRS report concluded that rate increases would likely raise revenue close to what static scoring predicts, because the corporate tax base is less sensitive to rate changes than commonly assumed. Profit shifting complicates this: OECD estimates suggest up to 10 percent of the global tax base escapes taxation through multinationals moving income to low-tax jurisdictions.
What Historical Tax Changes Show
The Kennedy-Johnson Cuts of 1964
The Revenue Act of 1964 dropped the top marginal rate from 91 percent to 70 percent and cut the corporate rate from 52 to 48 percent. Federal revenue rose from about $94 billion in 1961 to $153 billion by 1968, an increase of roughly 33 percent in real terms. The 91 percent starting point was so far above any plausible revenue-maximizing rate that the cuts almost certainly moved the system toward the peak. This is the cleanest historical case for the Laffer curve in action, though it says little about cuts from rates that are already moderate.
The Reagan Cuts of 1981
The Economic Recovery Tax Act of 1981 lowered the top individual rate from 70 to 50 percent and reduced other marginal rates by 23 percent over three years. Nominal individual income tax revenue dipped from $286 billion in 1981 to $289 billion in 1983 before climbing to $401 billion by 1988. In inflation-adjusted terms, revenue was essentially flat for several years before growing. The picture is muddied by the 1981–82 recession, the 1986 Tax Reform Act (which broadened the base and cut the top rate again to 28 percent), and strong GDP growth in the mid-1980s. The data are consistent with the 70 percent rate being above the peak, but the 50 percent rate did not produce the kind of immediate revenue surge the 1964 cuts did.
The Tax Cuts and Jobs Act of 2017
The TCJA cut the top individual rate from 39.6 to 37 percent and the corporate rate from 35 to 21 percent. Actual FY2018 federal revenue came in $275 billion below pre-TCJA projections, a shortfall of 7.6 percent. Corporate income tax revenue fell nearly 40 percent relative to projections, almost exactly matching the rate reduction. Individual income tax revenue fell 5.4 percent below expectations. The TCJA did not pay for itself in its first year, and the pattern is what you would expect from a tax cut starting near or below the revenue-maximizing rate.
Why the Range Is So Wide
The gap between a 46 percent estimate and an 83 percent estimate drives trillion-dollar policy choices. Several factors explain the spread.
- Tax code design. An ETI of 0.25 may describe a reformed, broad-based code with few loopholes. An ETI of 0.5 or higher better fits a code full of preferential rates and deductions. The revenue-maximizing rate moves when Congress changes the rules, even without touching the rates themselves.
- What counts as behavioral response. Diamond and Saez argue income shifting between tax categories is an avoidance response that reform could eliminate, so it should be excluded from the ETI used to set rates. Critics counter that avoidance is a real cost that cannot be legislated away.
- Macroeconomic feedback. The simple sufficient-statistic formula ignores broader economic effects. When Kleven incorporated macro-dynamic effects in 2025, the estimated peak dropped by 10 percentage points. Trabandt and Uhlig’s full macroeconomic model produces meaningfully different results.
- State and local taxes. Federal-only estimates ignore the 0 to 13 percent in state income taxes stacked on top. An 83 percent federal rate combined with state taxes would push the all-in rate well above any plausible peak, which is why the JCT study frames its 52 percent estimate as an all-in figure.
- Scoring methodology. Static scoring assumes behavior does not change. Dynamic scoring, which the Congressional Budget Office uses for major legislation, layers in macroeconomic feedback. Under House rules, dynamic scoring is required when legislation would affect GDP by more than 0.25 percent in any year. The two approaches can produce very different revenue projections for the same rate change.
The Practical Takeaway
The honest summary of the evidence: the revenue-maximizing top income tax rate for the United States probably falls somewhere between the low 50s and the low 70s as an all-in rate, depending on how the code is structured and how aggressively it is enforced. The most recent research, which accounts for macroeconomic effects and current code complexity, clusters around the lower end of that range. For capital gains, the peak sits lower, likely in the high 30s to high 40s under the current realization-based system. For corporate income, the evidence points to a surprisingly high peak, though profit shifting caps what any single country can extract.
Perhaps the most useful finding is that the curve is quite flat near its peak. Revenue does not change dramatically over a range of rates close to the maximum, so the cost of being slightly wrong about the optimal rate is modest. The cost of being very wrong, as history shows, is not.